The Consumer Finance Protection Bureau was created nearly a decade ago with the ostensible aim of protecting consumers from shady lenders, banks and financial services. However, its leadership structure has always been questionable at best, and the Supreme Court is now hearing a case that could result in the dissolution of the agency altogether.
Massachusetts Senator and Democratic presidential candidate Elizabeth Warren proposed the bureau’s creation in 2007. The agency was planned as a post-recession-era protection service for everyday Americans, many of which saw their finances crumble in late 2007 and early 2008. In many ways, Warren’s political legacy is tied to the CFPB.
The Seila Law LLC v Consumer Financial Protection Bureau case started when the CFPB issued a civil investigative demand to Seila Law LLC, and Seila Law LLC took the case to court, arguing that the CFPB did not have the right to investigate the firm. The Federal district court that originally heard the case ruled against Seila Law, as did the 9th Circuit Court of Appeals. However, Seila Law does have the government on its side as Current CFPB director, Kathy Kraninger, has herself stated that the agency’s structure is unconstitutional.
There are some indications that the Supreme Court may rule in Seila Law’s favor. A similar case was brought against the CFPB in 2016 and Justice Brett Kavanaugh, then a federal judge on the U.S. Court of Appeals for the D.C. Circuit, clearly stated that the CFPB is unconstitutional, noting that the agency’s director has more power than any other official in the U.S. government other than the President. Given the fact that the court has a conservative tilt, it’s likely that most of the judges on the court will agree with Justice Kavanaugh’s assessment.
What happens in the aftermath of a SCOTUS ruling against the CFPB is hard to say. Analysts note that the controversy surrounding the way the agency operates centers on the fact that the CFPB director, unlike other agency heads, cannot be dismissed at the will of the president. The fact that the agency is directly funded by the Federal Reserve instead of obtaining funding via the House of Representatives is also questionable — Congress has the power to regulate spending, per the U.S. Constitution.
It would be possible for the Supreme Court to rule that the Consumer Financial Protection Bureau is constitutional in itself, but has an unconstitutional structure. If this is the case, the way in which the agency is run and financed would change, but the institution itself would remain intact. On the other hand, the Supreme Court could go “all in” and not only rule that the agency itself is unconstitutional, but also call into question the Dodd–Frank Wall Street Reform and Consumer Protection Act that created the CFPB in the first place. Such a ruling would likely ire Democrats and activists.
The creation of a government agency that does not have to answer to Congress or even the President of the United States sets a dangerous precedent. The CFPB wields far more power than it should as it is authorized to take enforcement action on any transaction deemed to be “unfair, deceptive or abusive.” Naturally, Congress did not clearly define what “abusive” means, allowing government bureaucrats to make life miserable for a host of businesses that trespass vague guidelines.
The fact that the Supreme Court has taken the case shows that most of the judges on the court are concerned. The ruling is not expected until June 2020, but the odds of the court ruling against the CFPB are fairly high. This would be a good outcome for constitutional government.